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Labor in Focus

Fletcher School economist Lisa Lynch discusses the effect of the economic downturn on the country's labor market.

Medford/Somerville, Mass. [03.24.08] The effects of the current economic lull have moved from the realms of housing and credit to the American labor market, which suffered its second round of major job losses last month. The Fletcher School's Lisa Lynch shared her thoughts on the overall economic impact of these losses in an interview with PBS's Insider Forum.

According to Lynch, in terms of determining a recession, the labor market is a "lagging indicator" of the overall economy. This is due to the fact that some employers may wait to see if the decline is temporary, which in some cases leads to an increase in the unemployment rate well after a recession has ended. The stage for this year's job losses was already set in the fall of last year according to Lynch, William L. Clayton Professor of International Economic Affairs at The Fletcher School.

"It's important to note that all of the employment data that is reported by the Bureau of Labor statistics comes from surveys, and these surveys have sampling errors," Lynch told PBS. "We also have to note that with respect to employment numbers, so that minus 63,000 that we saw in employment for the February jobs report comes from a survey that has a sampling error."

Part of the surveying error is that it doesn't account for those without a permanent address, including those who are homeless, living in hotels or in prison.

"But the household survey is a sample. They do try to make adjustments for people that are not interviewed in the survey to come up with a national projection for the unemployment rate," she told the Insider Forum.

Aside from its effect on the U.S., a long decline in the economy could also have a global impact, according to Lynch.

"The United States is a gigantic consumer in the world," Lynch told PBS. "If we stop shopping, that means that for countries like China and others that rely on us as an important customer, that's going to decrease demand for their goods."

With the housing bust that has been seen across the country, Lynch-a research Associate at the National Bureau of Economic Research-said that both employment in residential construction and financial services relating to the housing market have taken a hit.

But not everything is doom and gloom, Lynch said on the program. "Some good news might be coming at us with respect to the decline in the dollar. This makes the United States a very attractive place for people looking for a summer vacation-especially if you are in Europe.

"You may very well see gains in employment associated with tourist destinations in the United States."

Looking forward to the rest of the year, Lynch told PBS that her concerns will lie with earnings and wage data.

"I am concerned, though, with the earnings and wage data that we're seeing in the employment report, that those are what people are experiencing in increases in wages and earning are just not going to keep up pace with inflation," Lynch said. "So that, in terms of what people are going to actually be able to spent their money on, that's something that I will be watching, as well."